Banc of America High Yield Broad Market Index up 1.01%, cuts loss for year to 0.22%

By Paul Deckelman

New York, June 1 - The Banc of America Securities High Yield Broad Market Index continued to bounce back from its recent doldrums and was up for a second consecutive time with a solid 1.01% gain in the week ended Thursday, which followed a 0.31% advance the previous week ended May 20.

Those gains followed a three-week stretch in late April and early May that saw the index decline markedly, including a 1.08% slide in the week ended May 6 and a massive 2.10% drop in the week ended May 13, which swung the index's year-to-date performance deeply into the red. The index is still in negative territory on a year-to-date basis, but the latest week's sizeable gain - albeit on relatively light trading ahead of the Memorial Day holiday break - cut the deficit a full percentage point, to 0.22% from negative 1.22% the week before.

Banc of America did not officially publish the index this week due to the holiday break, which saw an abbreviated session this past Friday and a full market close on Monday, but it did provide the relevant data to Prospect News.

The index's spread over Treasuries narrowed to 494 basis points over, from 505 basis points in the May 20 week; meanwhile, the yield to worst declined to 8.52% from 8.78%, its high for the year so far.

Large Cap index up 1.23%

Banc of America's more narrowly focused High Yield Large Cap Index has pretty much followed the same pattern as the High Yield Broad Market Index; after two weeks badly on the downside, including a year's-worst 2.35% loss in the week ended May 13, it bounced to a 0.43% gain in the week ended May 20 and followed that up with a 1.23% jump in the week ended last Thursday. The 2004 year-to-date loss declined to 1.14% from 2.34% the week before.

Large Cap's spread over Treasuries - like that of the High Yield Broad Market Index - narrowed in the most recent week, to 479 basis points over from 494 basis points in the week ended May 13. The yield to worst meantime tightened to 8.47% from 8.78% the week before.

In the latest week, the more inclusive High Yield Broad Market Index tracked 1,652 issues of $100 million or more, as the total market value of the issues grew to $496.4 billion from $491.7 billion the week before, while the High Yield Large Cap Index, representing the most liquid portion of the high-yield world, tracked 587 issues of $300 million or more; total market value increased to $298.3 billion from $294.8 billion the week before. Banc of America sees both as reliable proxies for the $750 billion high-yield universe.

On a credit basis, the lowest of the three credit tiers into which Banc of America divides its index (issues rated B- and below, accounting for 41.24% of the index) had the biggest gain, zooming 1.32%. The middle credit tier - consisting of those issues rated BB-, B+ and B and making up 44.88% of the index - was next, with a 0.87% return, followed by the highest credit tier (those credits rated BB+ and BB, comprising 13.88% of the index) with a 61% advance. The previous week, the middle credit tier did best as it returned 0.37%, followed by the top tier (up 0.29%) and the lowest tier (up 0.26%).

Industry groups all gain

All of the 23 industry groupings into which Banc of America divides its high-yield universe showed gains in the current week, many of them more than a full percentage point. In the previous week, 17 of the subsectors showed gains, against five showing losses and one - utilities - at a flat 0.00% showing.

In the latest week, wireline telecommunications operators had the best return, 1.94% - the second straight week in which wireline has been the best-performing subsector, following its 1.46% gain the week before, which tied wireline with the steelmakers for the top spot. The steelmakers, meantime, were again among the top five best performing groupings in the latest week, gaining 1.68%.

Along with wireline and steel, utilities (up 1.79%), PCS/cellular operators (up 1.74%) and transportation issues (up 1.46%) rounded out the latest week's top five. In the previous week, PCS/cellular had posted a 1.06% gain to make it into the top five; transportation, on the other hand, had been among the biggest losers the previous week, with a 0.17% loss.

With all 23 industry subsectors showing gains, there was no downside, per se, in the latest week, only groups having smaller returns than everyone else. Finance was the smallest, up a mere 0.12%; it had also been the weakest subsector the week before, when it posted a 0.39% loss.

Industrials (up 0.20%); non-ferrous metals and mining (up 0.29%); consumer non durables (up 0.45%); and consumer non-cyclical companies (up 0.53%) rounded out the bottom five list of the week's weakest finishers. In the previous week, non-ferrous metals and mining had been in the top five, with a 0.57% return. Consumer non-cyclical names had been among that week's bottom five, with a 0.13% decline.

On a year-to-date basis, consumer non-durables companies - despite having wound up among the bottom five with a relatively small gain this past week when compared with most everyone else - remained the top performers, their total return fattening to 3.74% from 3.27% the week before.

The non-ferrous metals and mining group stayed in second place, despite its bottom five finish, its return growing to 3.16% from 2.86% previously. The steelmakers, helped by a second straight week in the top five, jumped to a 2.84% return from 1.15% previously, while chemical companies were returning 2.59%, up from 1.52% the previous week. Consumer non-cyclicals were returning 1.94%, up from 1.70% the previous week, followed closely by industrials, which have returned 1.89% so far this year, up from 1.69%.

On the downside, transportation remains the worst-performing industry grouping year to date, despite its top five performance in the latest week, although the latest week's gain cut its massive year-to-date loss to 10.51% from 11.80% the week before.

Wireline telecom, buoyed by its second consecutive week as the best-performing subsector (including the previous week's tie) saw its cumulative loss fall to 6.70% from 8.47% the week before.

Utilities - another struggling group which wound up in the top five this week - cut their year-to-date loss to 3.18% from 4.88% previously. Cable /DBS's yearly loss narrowed to 1.50% from 2.90% previously, while PCS/cellular - a top five name this week - improved even more dramatically, going down to a 0.35% year-to-date loss from 2.05% the week before.

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